The Game with Alex Hormozi - How to Make $1 Million Dollars Per Year | Ep 290

Episode Date: April 8, 2021

Money, Money, Money! Today, Alex (@AlexHormozi) talks about something everyone wants to hear: how to make a million dollars. He breaks down the simple math equation you need to follow in order to achieve this goal, and the actions you should start doing to get ahead of the game.Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned on his path from $100M to $1B in net worth.Timestamps:(0:43) - Know units sold for goal. (realistic goals)(1:54) - Math behind million dollars & customer lifetime value.(3:30) - Examples of Lifetime Value and how to achieve it.(7:11) - Follow math, set goals, understand LTV for million-dollar business.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

It's easier to just over deliver like crazy for a client rather than trying to think about like, how do I make the scalable? It's like you don't need to worry about that yet. Like you need to just start making money. Welcome to the game where we talk about how to get more customers, how to make more per customer, and how to keep them longer, and the many failures and lessons we have learned along the way. I hope you enjoy and subscribe. What's going on, everyone?

I've got a fun topic today, how to make a million dollars. And so I know this is almost clickbitty. But I want to go over it mostly because it's like one of the number one questions I get all the time. and so we might as well actually break down the math for you. And so the number one way that I know that someone has no chance in actually doing this is they don't even know the math behind how to accomplish their goals, right? And so that's what we're going to break down today. All right.

So the first thing is you have to know how many units of whatever it is you're selling to get to your goal, right? And the question is, do you want to make a million dollars in revenue or do you want to make a million dollars in income? Mind you, to be in the top 1% in America, it's $400,000 a year. All right? And so let's say you have a business that run 40% net margins, which mind you, is very good. if you run 40% net margins. That means if you made a million dollars in revenue,

you would make $400,000 a year in net profit. What you get to take owner pay, right, from your business. Which is why, by the way, I think that having a job that pays well is very underrated. I think it's just, from being realistic, if you look at the odds, I think it's far, far, far more likely that you can achieve a six-figure or multi-six-figure income fast by having a really high-paying job because you've acquired a skill. than trying to learn basically all the skills and own your own business. I'm just being candid.

And I think that if I knew the amount of risk that I was taking on when I started business, I don't know if I would have done it again. And I think that I had an atypical entrepreneurial journey because I wasn't really an entrepreneurial personality type. I just really hated my job enough that I was going to do anything. But that, and so that's what started it. But let's get to the mean the potatoes, all right? So a lot of times people haven't even figured out their price points on things yet.

And so the easiest way to understand this is that if you have a million dollars year, which is what you want to make, then you want to break this down, right? So a million dollars year is going to be 83K per month, all right? Roughly, right? It's 83, 333, 3, 3, whatever. You could say 84K, but 83K per month, all right? That's what you have to make in revenue, right? Now, if you break it down per day, I think it's 33333, I think, per day.

But if you do it per week, so let's just break this into weekly, it would be like, let's just say 21K. Okay, so 21K per week. And you'll notice I'm going to keep breaking this down because it's really difficult to hit fuzzy targets. I heard this from Jason Flatland. Fuzzy targets don't get hit, right? So we need to make this a very precise, clean, pristine target. All right, so we got a million dollars a year, breaks down to 83K per month, 21K per week. Excuse me, 21K per week.

And then from there, you know, seven days would be about 3K plus per day, right? So that's how we know how we can get to that number. Now, I like weeks because weeks are like normal cycles. Daily can be a little bit too volatile until you get to like 10 million plus per year. And so if we're talking starting out, right, 21K per week, all right? So the thing is, we just have to know what the lifetime value of our customer is. And so let's say you're selling a single product that has no upsells, all right, which is pretty common. A single product that has no upsells, let's say your LTV is $1,000.

Okay? Now, I want to be really clear about this. you don't have to sell a $1,000 widget for this, for the math that I'm about to share with you to make sense. It just means that your total lifetime value of a customer is $1,000. Like Starbucks, I think, their LTV is like $8,000. And you're like, holy cow, well, think about how many times you purchased a Starbucks over the last, you know, 10 years, right? It adds up. And so for me, I'll give you a couple different examples of what a $1,000 LTV might be.

If I sold a course for $1,000 and I sold nothing else, that would be a $1,000 LTV. If I sold a $100 a month gym membership and the person on average stays 10 months, that would be $1,000. $1,000 LTV. If I sold, let's say, ah, crap, if I sold skincare products, right? And the average order value was, you know, $250 and the average amount of time that someone stayed on my cream products was four months. $1,000 is my LTV. Okay. So these are all different ways of achieving a thousand dollar LTV, which makes this hopefully a little bit simpler. Now, if I have to get to a million dollars, then I need to sell 21 units per week, right? And so that would be 21 divided by 1,000, which is just 20%.

21, right? Units per week to hit our goal. And so if I know that I only really sell five days a week, Monday through Friday, right? Then it means I got to sell four or maybe five. I'd probably make five my goal, so I overshoot it a little bit. So I got to sell five deals a day, right? And if I have five deals a day, and the nice thing is with this process that I'm walking through right now, like you can add as many zeros as you want. It works the same way, right? You can add zeros to your product, zeros to your goal. Like, everything works the same way. So it's five deals a day is what I have to close. Now, the thing is, is I may know my math. And know that five deals a day, we close, let's say, one out of three phone calls, which means I'm going to do 15 phone calls a day who show up, right? Real quick, guys, if you can think about how you found this podcast, somebody probably tweeted it, told you about it, shared it on Instagram, or something like that. The only way this grows is through word of mouth. And so I don't run ads. I don't do sponsorships.

I don't sell anything. My only ask is that you continue to pay it forward to whoever showed you or however you found out about this podcast that you do the exact same thing. So if it was a review, if it was a post, if you do that, it would mean the world to me and you'll throw some good karma out there for another entrepreneur. And now if I'm selling products, then it might be based on site conversion. So if I have like a 1% conversion on my store, an e-commerce store, for example, then I would need 100 times the amount of sales I need. Right. So if I need five, quote, sales per day with a lifetime value of 1,000, and I know that it takes 100 clicks to get one purchase, then I need 500 clicks a day.

Hopefully that makes sense here. but I'm just walking through a more service-based sale because it was top of mind. All right. So 15 calls, right, per day. And let's say that I know my show up rate on these calls is, you know, 66%. So I'd have 22 set appointments per day, right? And the thing is, is I know that based on my either outreach efforts, it takes, let's say, I don't know, 50 outreach efforts to get one appointment. I need a thousand outreach efforts a day, right?

Now, mind you, a $1,000 deal would not be worth any kind of effort like that. So because this is way way too low to have kind of like a hand-to-hand combat sale type type system. This would probably need to be closer to like $10,000. And then there you go. You get your $10 million. But I'm using this just to illustrate like the different ways to get there. Right.

And so a nice thing to think about this is that if you take out, if you take this little number here, your deal size, right? And you put that as the main variable for this process, right? You could either sell, you know, nine, 10K deals per month and have a million dollar business. Wow, right? You could sell one 100K deal per month to have a million dollar business. That sounds pretty chill. You could also sell 100, well, roughly, you know, 83, right?

1K deals per month. That sounds a little harder, right? or if you have $100 widgets, you got to sell, God, 830, right? Or 33, whatever it is, times $100 per month to hit that $83K, right? And so you can kind of see how much harder it gets, the lower the prices. Like, it's hard to sell 833 things every month. I mean, that's a lot of work, right? And honestly, it's hard to sell 83 things a month.

Selling nine, easier, right? And so it's been, this is just the conclusion that I've made throughout my life is that especially when you're starting out I think it's easier to start with premium things as in like it's easier to just over deliver like crazy for a client rather than trying to think about like how do I make this scalable it's like you don't need to worry about that yet like you need to just start making money right and so it's like how can I just how can I how can I find a sweet spot in here right this like 5,000 10,000 $15,000 mark how can I find a sweet spot in here where I can just

provide tremendous value to someone that they will want to continue to do services with me and I don't have to have a tremendous amount of operational skill because the reason this is so hard for people, this $100 month or even $10 a month range, is it's the operations behind it. You have to be able to support so much volume that you're very good with people. And that's a totally different skill than learning how to market and sell and acquire customers. And so this is where I think most people kind of run into trouble and why a lot of people who end up making more money earlier kind of focus on this upper side of the ladder. There's a very, very, very few exceptions of people who make a lot of money, like super, super rare,

make a lot of money below this $1,000 per unit price tag. You have to find a way to get your LTV hire because it's just too hard. Acquired customers is just too difficult to not have a high LTV. And like I said, Starbucks, right? 8,000 LTV. So it doesn't have to be your ticket price that has to be low. It's just like you have to find ways to make customers worth more, right? Unique, expensive, sticky air, if you remember that from before.

Habit forming. Something that they're going to continue to come back again and again and again. So, anyhow, how to make a million dollars. I think most people do not do this math on this, which is you got to make $21,000 a week. And then there's a zillion ways to make 21,000 a week, right? You can sell a hundred dollar units. You can sell a thousand dollar units. You can sell ten thousand dollar units because a hundred thousand more units But at the end of the day, that is how you do it and if you're thinking about this from a sales professional Stand point, so I'll break this down for you guys as a bonus because I know a lot of salespeople will follow our stuff Make this whatever your product is your commission, right? So if you want to make a million dollars a salesperson

Right then you need to sell like and let's say you get a thousand dollar commission then you need to sell eighty three units a month of your thing right and that may sound crazy and that it is because that's why you know that's why the top one percent is you know half of that in terms of income right and so but if you can if you can figure out that a thousand dollars you know if you can get your like you should be able to think in your mind like this is my income goal as a salesperson this is what I would like to make is the amount of calls you know or calls taken required to hit this goal reasonable right because on some level every every position has a cap based on time right how much how much time you could allocate, right? There's only 24 hours in a day. And so, anyway,

reverse the math on your own business and your own products that you're selling. And a lot of times, this will help you get your roles a lot faster. So anyway, you being awesome. Lots of love and I'll get you guys soon. Bye.